American Campus Communities (NYSE:ACC) has handily outperformed the S&P 500 since it went public in 2004, but may still be just starting to scratch the surface of its market opportunity. In this Fool Live video clip, recorded on Oct. 25, Fool.com contributors Matt Frankel and Jason Hall discuss why American Campus Communities looks like a stock worth of a closer look.
Matt Frankel: This is a real estate investment trust that pioneered the student housing industry back in the '90s. This was the first private student housing operator. It was founded by its current CEO, it's really rare to find a REIT that's almost 30 years old that's founder-led.
Jason Hall: Yeah.
Frankel: They're very rare. This is a great dividend stock yields about 3.6% right now. They have these off-campus housing communities that are purpose built for students. There's a big problem in college housing, especially in the markets that American Campus Communities targets, which they call the power five conferences, which are schools like the one I went to, University of South Carolina. These schools, the average on-campus housing unit is over 50 years old, which means it has inferior infrastructure, no modern amenities. A lot of on-campus housing is poor Internet connections, for example, because they've bad infrastructure and they have no cellphone reception in there because just the way the buildings were made, terrible places to live.
Hall: And linoleum tile.
Frankel: Right, and we shared bathrooms in the hallway. I don't know if you guys ever lived in a freshman dorm that had shared hallway bathrooms? Who wants that? What American Campus does, they build purpose-built apartment communities on or near campus. A lot of them are partnered with the university, so they are actually built on campuses. They're modern apartments, each student has their own bedroom and bathroom, and they rent these out at a price that is very similar to what you will pay for one of those old on-campus units.
The way I described American Campus Communities product is, let's say you had two car dealerships in your town, one is selling brand-new BMWs, one is selling 1998 Honda Civics, and they're both charging the same price. That's what this product is, that's how much it sells itself. Their occupancy was phenomenal, it was way better than expected in fall 2021. 95.8% occupancy when the market thought they were still going to be recovering from COVID, and I just want to share one chart that makes me really bullish on the future with this stock.
This is a chart of the off-campus student housing inventory coming on the market. In fall 2022, because of all these labor shortages and doting with supply shortages in the cost of lumber going up, the new inventory coming on the market in 2022 is forecast to be the lowest in over a decade at a time when college demand is going up and up. A lot of people took a gap year last year because of the pandemic. You're seeing that excess demand trickle back into the market. Lower supply, higher demand, that's a winning combination in any type of real estate and I think the off-campus housing market is still in its early days and American Campus Communities is an absolute pioneer in this space.
Hall: The only reason I didn't rate this higher Matt is I just keep struggling with the valuation it just seems like the market is pricing in so much future growth already. That's the only thing that I struggle with, the stock that it's pretty close to the highest that it's been ever, so I struggle with that a little bit.
Frankel: That's fair enough. It's not a cheap stock, there is a lot being priced like all this growth that we're seeing. They're growing rents faster than expected right now, and they're the company that's building the new housing complex for Disney's (NYSE:DIS) college internship program, which is a massive program. I don't know if you had any friends in college who interned with Disney, it's tens of thousands of students each year that intern at Disney and they are building the housing for that massive complex. They're thinking of outside the box ways to really grow their business too. It's a really interesting company, one of my favorites.